What is private equity?
Private equity refers to investing in unlisted companies. Private equity can refer to a variety of investment strategies, including leveraged buyouts (LBOs), venture capital (VC), and distressed investing. Typically, a takeover is structured as a limited partnership, but in this case, the term refers to a wide range of investments.
It involves taking a mostly majority stake in an existing business, acquiring ownership, and helping it grow. Typically, private equity companies acquire an existing company, restructure its operations, or acquire new technology.
Private equity can also be used to help businesses grow by providing access to capital and expertise. For example, a private equity firm may help a company by offering advice on strategy development, sales channels, and marketing strategies. By doing this, a private equity firm can help the business reach its goals faster and more effectively.
Private equity firms are typically large institutions that invest in companies across various sectors. They typically have access to large amounts of capital (both debt and equity), allowing them to invest in many companies.
What are the stages of private equity?
Private equity firms, also known as private equity (PE) companies, are organizations that raise capital from investors and then use it to make investments in private businesses.
The goal of a private equity firm is to earn a return on its investments. This can be done by investing in companies and then either buying out the company or liquidating it at some point in the future.
Three main stages are involved in the process of private equity: acquire, grow, and exit. These three stages typically happen over some time.
An acquisition stage occurs when the private equity firm invests in a company.
The growth stage occurs when the firm builds up its stake in the business and tries to increase its value.
And finally, the exit stage occurs when the private equity firm decides to either sell off its stake in the business.
Private equity follows three stages: Acquire, Grow and Exit
Private Equity Process: Aquire
- Right investment focus / thesis
- Market assessment
- Identify potential targets
- Formulate value creation thesis
- Submit / Sign Non-Binding Offer
- Plan / Organize Due Diligence
- Due Diligence
- Prepare business case
- Deal structuring
- Define financing structure
- SPA & Deal signing / closing
Private Equity Process: Grow
- Confirmatory analysis with top executives of the acquired company
- Business strategy
- Retain and attract top talent
- Complementary acquisitions (if required)
- Operational improvement program
- Deliver sustainable improvements
- Measure bottom-line results
- Risk management
Private Equity Process: Exit
Maximize deal returns
- Prepare of sale with short & long investment teaser
- Search for potential buyers
- Management presentations
- Sell process and deal execution
Private Equity vs. Venture Capital: What’s the Difference?
A private equity firm and a venture capital firm are both terms that refer to firms that invest in small, privately-held businesses in exchange for equity. Although they are sometimes used interchangeably, they are in fact different.
Venture capital and private equity (VC) firms invest in different sizes and types of businesses, invest in them for different amounts, and acquire different percentages of equity.
Private equity firms mostly invest in mature businesses that are already established. They purchase and streamline these companies in order to increase their sales. Venture capital firms, on the other hand, invest in young firms and startups, with huge growth potential.
What is the purpose of a private equity firm?
Typically, private equity companies acquire mature businesses, restructure its operations, or acquire new technology. They may help a company by offering advice on strategy development, sales channels, and marketing strategies. By doing this, a private equity firm can help the business reach its goals faster and more effectively.
How private equity firms create value?
Private equity firms create value mostly in their portfolio companies in three ways aimed at increasing revenues and margins: deleveraging, expansion, and operational improvements.
Which private equity firms are publicly traded?
Famous large publicly traded private equity firms are The Blackstone Group, Apollo Global Management, The Carlyle Group, and KKR & Co.
Why do private equity firms go public?
Raising funds through a public offering allows private equity firms fast and steady access to capital they would otherwise have to raise privately. This gives them more flexibility in pursuing new deals.
Secondly, it permits private equity firms a range of financial and retention incentives for its employees.
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Private Equity Investment Process Template
Free and fully editable template in PDF, PowerPoint, and Google Slides format.
The Private Equity Investment Process often varies depending on the target or the nature of the transaction.
This Private Equity Investment Process Template is intended as a starting point. This template needs to be adjusted depending on the deal and the nature of the transaction.